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Sound Rule, With a Serious Flaw

A year ago, we praised the Obama Treasury Department for championing a new rule to protect vulnerable Americans from rapacious creditors. Before the rule is finalized, the administration must fix a provision that could still cause severe hardships.

The law bars creditors from seizing Social Security payments and other federal benefits for veterans, the poor, the aged and the disabled. But banks often said they could not determine the source of customers’ deposits and allowed creditors to garnish accounts containing federal funds. The new rule adds electronic tags to automatically deposited government payments and requires banks to protect tagged deposits made in the prior two months.

Here’s the issue: The new rule will still allow seizure of all funds in an account if a state is trying to collect unpaid child support. That may seem to be a good way to get tough on deadbeat dads, but it will cause undue harm.

In a letter to the commissioner of Social Security, the National Consumer Law Center and 72 other advocacy groups pointed out that 70 percent of uncollected child support is owed by people who live below the poverty line and much of the debt arose because support obligations were not revised when the debtor became disabled, unemployed or incarcerated. Since the debts are often old, the amounts have been inflated by interest and penalties.

To both collect the debts and avoid driving these debtors into complete destitution, the law allows Social Security to withhold up to 65 percent of a benefit to cover unpaid child support — and to pay the recipient the rest. Recipients of reduced benefits have been able to shield the remainder by receiving their payment via paper check and simply cashing it. Starting next year, all government benefits will be automatically deposited. If the rule is not amended, the full amount will be subject to seizure.

The way to fix the problem is to rework the garnishment rule so that it treats child support debts the same way it treats other debts. Fixing the rule would not excuse nonpayment of child support. Rather, it would achieve what the law intended by ensuring that no one is impoverished by ruthless debt collection.

A version of this editorial appears in print on February 24, 2012, on page A26 of the New York edition with the headline: Sound Rule, With a Serious Flaw. Today's Paper|Subscribe